Manulife Expands in China

Manulife Financial Corporation (MFC - Analyst Report) is continuously growing its operations in China. Recently, the China Insurance Regulatory Commission (CIRC) has approved Manulife-Sinochem, Manulife's joint venture company, to operate in Linyi and Yancheng. Manulife-Sinochem is now licensed in 41 cities of China.

Manulife-Sinochem is a joint venture company between Manulife (International) Limited (51%) and China Foreign Economic and Trade Trust & Investment Company, a member of the Sinochem group (49%). Manulife-Sinochem began operations in Nov 1996 and was the first Chinese-foreign joint-venture life insurance company established in China. The company currently serves over 500,000 customers across China through approximately 11,000 professionally-trained staff and agents.

The insurance market in China is attractive for its growth potential. As a result, investors are eyeing this market. Linyi, the largest city in Shandong, has a population of around 10 million. The city boasts of strong economic development during the financial crisis period. Yancheng in central Jiangsu, the other addition, is the province's second-largest city. There are about 8 million people residing in the Jiangsu province.

Manulife's fourth-quarter earnings of 48 cents per share was below the Zacks Consensus Estimate of 51 cents. The miss was driven by mark-to-market adjustments in real estate investments, model refinements to actuarial liabilities and tax adjustments.

However, the company benefited from equity market appreciation and increases in corporate bond yields. In addition, we think that such an expansion drive will considerably add to Manulife's scale and strengthen its position globally in the foreseeable future.

As a result of the severe downturn in the equity market during the financial crisis, the balance sheets of insurance and wealth management companies have been challenged.

In addition to Manulife, the balance sheets have been impacted adversely for many other companies, such as Principal Financial Group (PFG - Analyst Report), Lincoln Financial Group (LNC - Analyst Report) and Hartford Financial Services Group Inc. (HIG - Analyst Report). Particularly, the variable annuity businesses of these companies have been worst hit. However, we think that the recent rebound in the equity markets should provide some relief.

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